Laketown Wharf – Corus Bank bracing for money outflow

I’ve had some dialogue with a Corus Investor who has been kind enough to keep me updated with what Corus is up to regarding Laketown Wharf. Below is the most recent update:

1) They suspended payment of interest on $404m of debentures (type of bond). This is the only debt that Corus (holding company) has, other than deposits. The rules of the debenture allow this for up to 20 quarters. The holders of the debentures cannot be too happy. This was done to preserve cash for operations. No big deal unless you need the interest and own the debentures.

2) They disclosed that they formally applied to TARP funds from the Treasury. If granted, they will issue preferred stock to US Treasury at 5% for 5 years. I DO NOT think they would have applied if there was any chance of rejection. This may also force a merger of Corus with another bank, but I put that at less than 5% odds because the Glickman family owns half the bank and they are not going to be too happy taking orders from anyone.

One of the Glickman wives sold about 20% of her shares. No big deal. the proceeds were enough to buy her a $30k car. She’d probably going to use the proceeds for a divorce! Her spouse owns about 6 million shares.

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Specific Corus actions, like those of the last week and over the past 20 months, are a brace for survival in unfit financial times. Management of cash flow and deposits are critical. Seasoned bank and real estate managers are capable and prepared for these times, and Corus’ management is very capable.

Bank deposits rose in the first two quarters of 2008 and dropped this last quarter. However, September saw extremely positive deposit activity. Their deposit base is national in scope, so a rumor in Chicago is unlikely to effect a “run on the bank”, which was the primary reason IndyMac failed and had a significant hand in WaMu and Wachovia’s troubles. For 5 years, Corus has been competitive for deposits, usually having the top national one year CD rate and attractive money market rates, all FDIC insured.

Laketown’s proper and appropriate completion is critical to their mission. The better that completion is executed, the more valuable the property will be to Corus’s plan. As you know, they plan to spend $10 million on that completion.

Laketown is not the only property that Corus will have to complete. They have taken on two more properties (Altanta and S. Florida ~ both completed) recently and will soon take over another. They may end up with 15 more. My gut feeling is Corus management will complete and sell them with successful results. In my opinion Corus will survive and probably thrive in the coming financial environment.

Of course, none of this information makes people feel better if they have, or are about to, lose a deposit for not closing on their condo at Laketown. But personal financial decisions that have gone bad should not be taken out on Corus.

I think that PCB should have confidence that Corus management will do the right thing for completion. We will see.

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